After reading The Eastern Company's (NasdaqGM:EML) most recent earnings announcement (28 March 2020), I found it useful to look back at how the company has performed in the past and compare this against the latest numbers. As a long term investor, I pay close attention to earnings trend, rather than the figures published at one point in time. I also compare against an industry benchmark to check whether Eastern's performance has been impacted by industry movements. In this article I briefly touch on my key findings.
How Did EML's Recent Performance Stack Up Against Its Past?
EML's trailing twelve-month earnings (from 28 March 2020) of US$15m has jumped 12% compared to the previous year.
However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 19%, indicating the rate at which EML is growing has slowed down. To understand what's happening, let's examine what's transpiring with margins and whether the rest of the industry is feeling the heat.
In terms of returns from investment, Eastern has fallen short of achieving a 20% return on equity (ROE), recording 14% instead. Furthermore, its return on assets (ROA) of 6.1% is below the US Machinery industry of 6.4%, indicating Eastern's are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Eastern’s debt level, has declined over the past 3 years from 11% to 9.0%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 5.3% to 93% over the past 5 years.
What does this mean?
Eastern's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? You should continue to research Eastern to get a better picture of the stock by looking at:
Financial Health: Are EML’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
Valuation: What is EML worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether EML is currently mispriced by the market.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 28 March 2020. This may not be consistent with full year annual report figures.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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